How do subjects view multiple sources of ambiguity?

Economics

Speaker:

Jurgen Eichberger, Heidelberg University

Date:

Friday 4 April 2014

Time:

14.15

Location:

Bateman Lecture Theatre, Building One

Further details

As illustrated by the famous Ellsberg paradox, many subjects prefer to bet on events with known rather than with unknown probabilities, i.e., they are ambiguity averse. In an experiment, we examine subjects’ choices when there is an additional source of ambiguity, namely, when they do not know how much money they can win. Using a standard independence assumption, we show that ambiguity averse subjects should continue to strictly prefer the urn with known probabilities. In contrast, our results show that many subjects no longer exhibit such a strict preference. Link to seminar paper: www.dropbox.com/s/b9z5j332mmmp2l4/Eichberger-Oechssler-Schnedler-2014.pdf